(July 11): SK Hynix Inc delivered a 13% gain in its debut trading day on a US exchange, after breaking the record for the biggest first-time share sale by a foreign company.
The South Korean memory chipmaker’s American depositary receipts (ADRs) finished their first session on Friday in New York at US$168.01 ($217.22) each, below the US$170 opening price but still well above the US$149 level where the securities were priced on Thursday.
Investors embraced the US listing of the high-bandwidth memory pioneer, whose Seoul-traded shares have soared amid the surge in demand for the components enabling artificial intelligence (AI) computing. Even after jitters around the sustainability of spending on data centres rattled chipmaker shares, the market comfortably absorbed SK Hynix’s US$26.5 billion offering — the third-largest debut share sale ever, data compiled by Bloomberg showed.
More than 106 million ADRs were traded in the first day, data compiled by Bloomberg showed.
The listing comes as hundreds of billions of dollars are being earmarked to build more data centres, and SK Hynix and its peers are competing hard to capture as much of the spending as possible, as they struggle to keep up with demand.
“Today is a very proud day, and today is a truly historic day for SK Hynix,” chief executive officer Kwak Noh-Jung said during the ringing of the Nasdaq opening bell. “HBM stands at the heart of the AI revolution.”
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The question for memory stock bulls is whether the so-called super-cycle can last as production bottlenecks ease.
“For the memory market I think there’s a lot of visibility towards the supply-demand dynamic being very tight until at the very least 2028,” said Ryuta Makino, a research analyst at Gabelli Funds. The firm’s funds are invested in SK Hynix’s common shares.
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Makino doesn’t see an oversupply issue in the near term because the memory industry is being careful with ramping up volume, he said in an interview with Bloomberg News.
SK Hynix intends to use the proceeds of the US offering to build additional capacity and buy extreme ultraviolet lithography, or EUV, machines, its filings showed.
Investors are returning to bets that robust AI-related demand represents a secular growth story for memory stocks, which have traditionally been viewed as more cyclical in nature, with demand and growth rising and falling alongside PC and smartphone cycles.
“There will still be up and down years, but the down years will be less than they used to be,” Makino said.
There’s little sign so far of AI-related spending slowing down. The company and rival Samsung Electronics Co are poised to invest in South Korean projects as part of a government-led initiative worth at least US$880 billion.
“If we see any weakness or softness in the demand side, that would be the key risk to derail this memory party,” said Di Zhou, a portfolio manager at Thornburg Investment Management.
Argument in favour
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The trading in SK Hynix’s ADRs have justified the argument in favour of a US listing for the South Korean firm. The stock is trading at a premium of about 16% over the closing price of the Seoul-listed common stock, due in part to restrictions on exchanging the South Korean stock for the US instruments, and has narrowed a valuation gap with rival Micron Technologies Inc.
The offering was more than seven times oversubscribed, Bloomberg News reported.
“There was clearly a latent demand by US investors for the shares,” according to Steve Sosnick, the chief strategist of Interactive Brokers. He cited extraordinary growth in the Roundhill Memory exchange-traded fund (DRAM), saying the fund has been a proxy for access to SK Hynix and Samsung.
“That said, it’s not only being bought and held by long-term investors, since the volume represents half the outstanding ADRs.”
Baillie Gifford, Coatue Management and Situational Awareness Partners were allocated about US$5 billion worth of ADRs as cornerstone investors, people familiar with the matter have said, as other investors crowded into the offering. The figure is US$2 billion less than the maximum amount listed in its US regulatory filings.
SK Hynix chairman Chey Tae-won signalled in a Bloomberg Television interview that the company may issue more US shares if the company is able to deliver strong enough returns and stoke investor demand.
“That actually requires a better return,” Chey said. “Once we have a better return, then there’s more demand. The first thing we have to do is keep the stock price stable, and then hopefully in the long run we can have the upside potential.”
Stability may prove hard to come by, thanks in part to leveraged exchange-traded funds that have pushed the common shares around, amplifying swings in the stock and even South Korea’s Kospi index.
SK Hynix’s Seoul-traded stock has recorded more than 50 sessions this year in which it moved at least 5% in either direction — compared with roughly 37 such sessions in all of last year, and approximately 44 over the preceding three years combined, according to Bloomberg calculations. The common shares edged down 0.3% on Friday.
Activity ramps up
SK Hynix’s ADR offering comes as first-time share sale activity ramps up dramatically. US listings excluding blank-check firms and other financial vehicles raised a record US$126.8 billion in the first half of this year, led by SpaceX’s blockbuster US$86.2 billion initial public offering in June.
Even beyond IPOs, tech companies are raising unheard-of sums to fund their AI spending, with Alphabet Inc alone set to raise US$85 billion through the latter part of the year.
More Asian technology firms could follow in the memory chipmaker’s footsteps as it ends a slow period for ADR listings. Kioxia Holdings Corp is also preparing a US offering after the Tokyo-based firm’s shares soared more than 2,900% in Japan over the past year.
SK Hynix’s offering was led by Bank of America Corp, Citigroup Inc, Goldman Sachs Group Inc and JPMorgan Chase & Co, with participation from nine other firms. The ADRs trade on a when-issued basis on the Nasdaq Global Select Market under the symbol SKHYV, which will change to SKHY when they begin regular-way trading on July 13.
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